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What of 

CHINA 

and 

JAPAN 



By George WoodruflF 



^hat of 

CHINA and JAPAN? 



By 

George Woodruff 



Because of the great interest that is now felt in Far 
Eastern matters and at the requestof many members, who 
wish to retain Mr. Woodruff's letters from the Orient in 
some convenient form, the Illinois Chamber of Commerce 
has had a limited number of these books printed for pri- 
vate distribution. Some of the matter contained herein 
has already been published in The Illinois Journal of 
Commerce and some has been sent out to members in 
leaflet form. Now, however, for the first time, all of this 
material has been condensed into a book that tells in 
graphic style of the political problems and ambitions of 
the two great nations of the Far East, as well as of their 
financial resources and commercial opportunities. 



Published by the 
Illinois Chamber of Commerce 
1921 






zvO 



.t\^ 



LIBRARY OF CONGRESS 

NOV22192t 

OOCUMENT* OiViSlON 



CHAPTER I 



The Form of Government 
in Japan 



AMERICAN business men are beginning to take a very great interest in all 
foreign trade matters and the members of the Illinois Chamber of Com- 
merce may consequently be interested in a general review of the present 
political and business conditions in the Far East. 

First of all, it is perhaps quite important that consideration be given to 
the form of government in Japan which seems to be very much like the Ger- 
man form of government before the war. 

The Mikado 

The Mikado is supposed to be a direct descendent of the Gods, and the 
people of Japan believe that he is divine. Pictures of the Mikado are in all 
of the houses, and a majority of the people bow down before these pictures. 
The important religions are Shintoism and Buddhism and both teach the 
divinity of the Mikado. The people have been taught for generations to be 
loyal to the Mikado, and there is probably no country on earth in which the 
people are so solidly loyal to their ruler and their government. 

The Mikado exercises the supreme power, and his will is practically law. 
However he is advised in important matters by the Privy Council. 

The Privy Council and Elder Statesmen 

The Privy Council consists of thirty-nine members, and its functions are 
purely advisory. This Privy Council is of course hand-picked, and it represents 
the ruling classes, and the vested interests, together with the militarists. In- 
side of this Privy Council there developed a clique of seven men, called the 
Elder Statesmen, only three of whom are now active. These Elder Statesmen 
•actually run Japan. Their appointment is not provided for in any of the 
laws of Japan, but nevertheless they are the real power and the Mikado and 
everybody else usually follows their recommendations. They are militarists 
and they control the army and navy. They sometimes use their influence 
against the Cabinet and Diet much the same as the militarists used to do in 
Germany. 

The Cabinet 

The Cabinet is provided for in the constitution and the direction of the 
country's affairs is supposed to be largely in its hands. However the Prime 



Minister is usually recommended by the Elder Statesmen, and after appoint- 
ment, he forms the Cabinet. The Cabinet is not responsible to the Diet but 
is responsible to the Mikado, just the same as the German Cabinet used to 
be responsible to the Kaiser. 

The Diet 

The Diet consists of two houses — a House of Peers and a House of Repre- 
sentatives. The Diet has power to pass laws but these laws do not go into 
effect unless and until they are approved and promulgated by the Mikado. 
Under certain circumstances the Mikado can proclaim laws without consulting 
the Diet. 

The House of Peers is composed of members of the royal family and 
nobility, representatives of the army and navy and a number of manufacturers, 
financiers and business men representing the largest tax payers. 

The House of Representatives is elected by the people, but only those 
male Japanese at least twenty-five years of age who pay a direct tax of ten 
yen ($5.00) can vote. As the people are poor there are not very many men 
who pay this tax, and consequently out of a total population of some seventy 
millions in Japan and its dependencies less than three million can vote. Further- 
more many of these are prevented from voting by bribery, and dishonest 
election methods are said to be quite customary. 

A writer has recently said that "the model of administration is not the 
British Parliament or the American Congress but the United States Steel Cor- 
poration, and the Standard Oil Co." Japan is apparently owoied and run 
by less than two hundred thousand men^ consisting of the rulers, the militarists 
and "the interests." 

The people seem to be pretty well satisfied with this form of govern- 
ment and at the present time it would seem that a monarchy is better suited to 
the needs of oriental peoples than a republic. However there is a consider- 
able liberal movement in the country and the advocates of real constitutional 
government will some day overcome the Elder Statesmen and the militarists. 
The struggle between these two forces is similiar to the struggle that went on 
in Germany before the war. 

In international affairs the Japanese form of government gives to Japan 
the same very great advantages that the old German form of government gave 
to Germany. Japan is able to adopt international policies promptly and secretly 
and to strike swiftly and effectively. 



CHAPTER II 



The Expansion of Japan 



JAPxA-N has a very large population and the Japanese Islands do not furnish 
sufficient room for all these people, particularly as the population is in- 
creasing at the rate of about 700,000 per year. Between five and six million 
farmers cultivate the land but their average farms are less than three acres in 
size and it is necessary for each farmer's family to carry on some form of 
home industry in order to make both ends meet. Furthermore, industrial condi- 
tions are very bad and the wages paid are very small so that the masses of the. 
people are very poor and the scale of living is of course very low. 

Japan, like Germany, felt that the best way to take care of her increasing 
population was to expand her territory and send colonists out of Japan. She 
felt that the expansion of territory was particularly necessary because her 
colonists were not welcome in the United States, Canada and Australia. 

After Japan had expanded her territory somewhat in the north and in the 
south she learned that her people did not care to colonize land located in a 
cold climate or in the tropics. The Japanese thrive best in a warm, temperate 
climate and consequently the rulers of Japan changed their plans somewhat 
and decided that their increasing population should be supported by the de- 
velopment of industrialism the same as had been done in England: Japan 
has consequently continued to expand her territorj^ with the idea of merely 
governing her dependencies, obtaining raw materials therefrom and developing 
trade therein. Under this plan officials, traders, business men and a com- 
paratively small number of colonists have gone into the countries that have 
been taken over by Japan, and have developed a demand for Japanese goods 
that has made possible the more rapid growth of industry at home. 

The Chinese War 

For many years Japan and China both endeavored to control Korea, 
and finally in 1895 Japan picked a quarrel with China and declared 
war. This war was a short one because Japan was thoroughly prepared and 
China was not. As a result of the war the influence of Japan was recognized 
in Korea, the island of Formosa was ceded to her and she was given territory 
at Port Arthur in southern Manchuria. Russia, France and Germany pro- 
tested against Japan receiving Port Arthur as they said it would threaten 
Chinese independence and might disturb the peace of the Far East. As a 
consequence Japan was compelled to give up Port Arthur. 



European Expansion 

Within a short time Japan was astonished to receive word that Russia had 
decided to take possession of Port Arthur herself and at about the same time 
Germany took possession of territory in Shantung province, France extended 
her holdings in the south of China and Great Britain joined in the game and 
added to her various holdings of Chinese territory. 

Japan promptly decided that the only way to be respected in the world 
was to possess warships and armament and she immediately began to equip 
herself from a military standpoint. 

The Russian War 

After a few years Russia began to try to push Japanese influence out 
of Korea and finally in 1905 Japan declared war against Russia and to the 
surprise of the world the Japanese were everywhere triumphant on both land 
and sea. 

As a result of the war Japan's influence over Korea was conceded and 
she also got Port Arthur and took over Russian interests in southern Manchuria 
and eastern Mongolia. 

Japan w^as particularly interested in getting a foothold in Manchuria 
for here could be found both iron and coal and Japan was in need of both 
iron and coal in order that she might become a great industrial nation. 
Furthermore Manchuria and INIongolia contain many other valuable raw 
materials and the opportunities for Japanese colonization in these two provinces 
are very fairly good. While these two provinces are still supposed to be- 
long to China, nevertheless the Japanese control them to a very large ex- 
tent and Chinese sovereignty is fast becoming a fiction. 

After the Russian war Japan repeatedly stated that she would respect the 
independence of Korea although insisting that her influence in that country 
must be respected by other countries. However, Japan gradually took over 
the government of Korea and finall}-^ annexed the country. Many Europeans 
and Americans protested against this annexation, but Japan claims that she only 
did what England has done in Eg^'pt and what many other European countries 
have done in various parts of the world. 

Japan has made great improvements in Korea but she has nevertheless 
proved herself to be a poor colonizer, because she has never won over the 
people of Korea who are still sullen and watchful for an opportunity to regain 
their independence. 

Siberia 

During the world war the Allies and the Japanese sent an expedition 
into Siberia. The Allies finally withdrew their soldiers from the country but 
the Japanese are still there and it looks as though they may intend to en- 
deavor to permanently extend their influence over all of Siberia as far west as 
Lake Baikal but such an arrangement might very possibly bring about a 
future second Russian-Japanese war. 

Encroachment on China 

Since China became a Republic her government has been more chaotic 
than when she was a Monarchy, and constant changes in the administration 
have taken place. The Japanese have been fully alive to the situation and 
it is claimed that their influence over the Peking government is very great. 



Certain it is that their traders and business men have been spreading all over 
China and that they maintain Japanese garrisons in many Chinese cities. 

The Japanese of course control the Shantung peninsula which they took 
away from Germany and they have also declared a sphere of influence over 
Fukien province which is opposite the island of Formosa. 

Many Japanese business men believe that in the future raw materials will 
come from Manchuria, Mongolia and Siberia, will be manufactured in the 
factories of Japan, and will be sold in the markets of China. It is hoped by 
these Japanese that Japan will own the sources of raw materials and that 
her influence in China will be so supreme as to give her something of a 
monopoly in the Chinese markets. 

Acquisition of Islands 

Ever since Japan became a modern nation she has been acquiring from 
time to time, various islands scattered up and down the coast of the main- 
land of Asia until at the present time she owns a chain of islands extending 
from Kamchatka to the Philippine Islands. It is only necessary to study 
a map to realize the strategic strength of Japan's position all along the coast 
of Asia. Recently Japan has extended her island possessions toward the south 
by taking over from the Germans the Caroline Islands and the Marshall 
Islanids and various other German islands located north of the Equator. These 
new possessions include the Island of Yap where the much discussed cable 
station is located. 

The Open Door 

For many years the United States has stood for the "Open Door" in 
China and Manchuria and all of the nations interested in the Far East have 
consistently supported this policy in theory. However in practice the "Open 
Door" is a fiction in most of Manchuria and various parts of China. Before 
the war China was pretty well covered by the spheres of influence of Russia, 
Japan, Germany, Great Britain and France. Japan has now superceded Ger- 
many and has at least temporarily superceded Russia. The influence of Japan 
in China has gained enormously as a result of the war while the in- 
fluence of Great Britain and France has suffered in some ways. The tenden- 
cies of the last few years would seem to point toward the closing of the "Open 
Door" and the monopolizing of the Chinese markets by a few powerful nations 
among which the United States would be conspicuous because of its absence. 

A recent attempt to assure the inclusion of United States business men 
in the development of China has been made through the participation of 
American financiers in an international financial Consortium which has been 
planning to extend necessary loans to China for the development of the country. 

This financial participation by Americans cannot but be advantageous 
to our interests, but nevertheless many people in the Orient feel that the 
"Open Door" will soon disappear except in theory unless new international 
agreements are made concerning the whole Far Eastern situation. 

The whole question of the Far East will come up for discussion at the 
International Conference called by President Harding, and it is consequently 
very important that American business men familiarize themselves with Far 
Eastern conditions. 



CHAPTER III 



War On the Pacific 



THE question is constantly asked all around the Pacific Ocean as to 
whether the United States and Japan will eventually fight a great war. The 
United States feels aggrieved because Japan is apparently closing the 
"Open Door" and Japan feels that she has several grievances against the United 
States. 

California and the Japanese 

Japan has strongly protested on various occasions against the laws of 
California which have discriminated against the Japanese and have made 
difficult their ownership of land in California. These laws provide that land can- 
not be held in California by any alien who is not entitled to become natural- 
ized under our laws. As our laws provide that only white men and negroes can 
become naturalized the Japanese are of course barred from the ownership of 
land and the Japanese government considers that this is racial discrimination. 
They point out the fact that Turks, Mexicans, Hottentots and Zulus can own 
land under our laws but the Japanese are disqualified because they belong to 
the yellow race. 

The Japanese cannot object to laws that bar all outsiders from owning 
land for they have passed laws that prohibit the ownership of land outside of 
their treaty ports by any aliens. However Japan objects to the discriminatory 
nature of our laws and has consistently demanded the recognition of racial 
equality. 

At the coming International Conference to be held in Washington the 
question of racial equality will undoubtedly be brought up and it might do 
no harm and might on the other hand do considerable good for us to admit the 
•political equality of the white and yellow races, but such a declaration by us 
should clearly point out the fact that our exclusion laws and land laws are made 
necessary by economic and not racial considerations and therefore could not be 
affected by our admission of political racial equality. Japan cannot logically ob- 
ject to this position for she herself, for economic reasons, bars out Korean and 
Chinese coolies although they surely enjoy racial equality with the Japanese. 

As a matter of principle it would of course be wise for us in America to 
endeavor to frame exclusion laws and land laws so that they will be general in 
their scope instead (of being apparently aimed against any one race or nation. 

While the California grievances have been played up very strongly in 
Japan and while Japan is of course intensely interested in seeing that her people 

8 



obtain the best possible treatment in America, nevertheless many shrewd men 
feel that Japan has used very good diplomatic strategy in keeping our attention 
riveted on California while she was making her great advance in Manchuria, 
Mongolia and China. 

Opposition to Expansion 

The Japanese feel that the United States has always opposed Japanese 
expansion on the main land of Asia or in any other direction. They point to 
their need of expansion and call attention to the fact that the United States 
has not seriously objected to the expansion of European nations in Asia and in 
Africa. They furthermore cite the fact that the United States has done con- 
siderable expanding herself and is still extending her domain around the Carib- 
bean Sea. 

The Japanese feel that the Americans have given considerable encourage- 
ment to the Koreans in their agitation for independence from Japan and every- 
body in America knows how Japan feels about our opposition to Japanese con- 
trol of Shantung and our position concerning Japanese possession of the Island 
of Yap. 

Trade Rivalry 

Japan feels that because of her geographical position she is entitled to 
dominate the trade of eastern Asia and as her business men and traders come 
into competition with Americans who are interested in trade with this part 
of the world there naturally results numerous causes for friction and bad feelir>g. 

It is interesting to note that many Japanese feel that they are entitled 
to exclusive rights on the main land of Asia and there is considerable talk 
of a proposed Japanese policy to be known as "Asia for the Asiatics." This 
proposed policy is said to be justified by our Monroe Doctrine but upon 
examination the two policies are found to be entirely different. Under our 
Monroe Doctrine we do not keep garrisons permanently in South America nor 
do we interfere with the internal affairs of the countries south of us nor do 
we take any steps to monopolize their trade to the disadvantage of other 
nations. All of these things are being done by Japan in China and it is pro- 
posed to justify this policy by giving it the attractive title of "Asia for the 
Asiatics." If Japan would declare a real Monroe Doctrine and would then 
carry out this doctrine as we carry out our Monroe Doctrine the United 
States could not logically object because we have consistently stood for 
the integrity of China and equal opportunity of all nations to trade with that 
country. 

Difficulties of Warfare 

Should disagreements between the United States and Japan grow to a 
point where warfare was seriously considered it is certain that both countries 
would realize the difficulties of waging warfare with a nation so far away. 
It is true that the Philippines are at present a very weak point and could 
easily be taken by Japan but any idea that the Japanese could send an 
army across the Pacific and invade the United States is nonsense. Further- 
more any idea that we could send an army of invasion to Japan is also non- 
sense. The Japanese would probably take the Philippines and then wait for 
us to come and take them back. We would probably not be so foolish as to 
try to take them back but would have our navy interfere as much as possible 
with Japanese trade and overseas interests. However in these days of new 
military and naval inventions it is of course impossible to guess as to how 



such a war would be conducted, but it is certain that the intervening distance 
between the two nations would make warfare difficult and would consequently 
constitute a strong reason for the maintenance of peace. 

Financial Losses of a War 

The financial losses of a war would of course be serious for the United 
States but would be disastrous for Japan. We are Japan's best customer and 
it would bring bankruptcy to m.any lines of business if Japan were to fight 
her best customer. Furthermore she buys from us great quantities of essential 
raw materials without which a great part of her industry would suffer a 
considerable collapse. 

The financing of such a war would seem to be entirely beyond the power 
of a people who are already very heavily taxed and who are living largely 
from hand to mouth. Before the world war it was suggested that 
either Germany or Russia might finance a war against the United States 
by the purchase of Japanese bonds but the conditions are now completely 
changed and the only market in the world where large issues of government ob- 
ligations can be absorbed is in the United States. Then, too, the fact should 
not be lost sight of that in a war between the United States and Japan the 
interests of Canada and Australia would be just the same as the interests of 
the United States, and this situation would insure the support of Great 
Britain during the contest. Japan is unpopular in China and is constantly 
having trouble with the natives of Korea, and it is consequently permissible for 
us to presume that the influences of the mainland of Asia would be on our side. 

No War in the Near Future 

After studying the situation in the Far East it would indeed seem very 
unlikely that there will be any war between the United States and Japan 
until the passing years have brought great changes in fundamental conditions 
in this part of the world. We should however always keep in mind the fact 
that Japan is controlled by a military clique much the same as was 
Germany and that this clique is not responsible to the people but is never- 
theless all powerful. If these men should so far lose their heads as to believe 
that a great war would be to the ultimate advantage of Japan, international 
trouble might very possibly ensue. 

It would seem as though the United States should not be overawed by 
the thoroughly advertised military genius of the Japanese, remembering that 
while they have a great army and an efficient navy, they have nevertheless 
fought but two wars in modern times, one against the unprepared Chinese 
and the other against the corrupt and poorly led Russian forces operating 
many thousands of miles from home. The policy of the United States in the 
Far East should be strong, but on the other hand it should be carefully based 
on policies that are absolutely fair to Japan and every effort should be made 
for disarmament and mutual understanding for on good feeling and agree- 
ment between these two great countries the peace of the world largely depends. 



10 



CHAPTER IV 



The Western Side of the Pacific 



Aj^JAP of the Western Side of the Pacific Ocean shows Siberia at the north, 
then Manchuria and Korea, after which comes the RepubUc of China. 
South of China are the Philippine Islands, Borneo, Celebes and New 
Guinea and farther to the south are Australia and New Zealand. The affairs 
of all of these countries are interwoven in the Far Eastern question and it may 
be of interest to note what parts of these great stretches of territory are of 
particular interest to the United States. 

First of all it must be admitted that the future development and trade 
of Siberia is of some interest to us but Siberia has been looked upon as the 
permanent possession of Russia and we have consequently never felt that 
we possessed any vital interests in the country. If there is to be a change 
in the status of Siberia we are of course anxious to see that our business 
men receive fair treatment in that great section of Asia but nevertheless we 
cannot expect that there will be a trade of great magnitude with Siberia for a. 
considerable number of years to come. 

Korea is now a part of Japan, and Manchuria, including eastern Mon- 
golia, is already generally acknowledged to be under the domination of the 
Japanese. In these countries we could develop a large trade, but their political 
^ifiliation with Japan is now; so close that we cannot expect to obtain 
more than a small part of the business originating there. 

The Republic of China constitutes a vast land of opportunity for Amer- 
icans for here must be carried on enormous development works and a tre- 
mendous volume of trade. Japan is already endeavoring to control the north 
of China including Shantung province. Great Britain has spread her in- 
fluence over the central part of the nation and also over various harbors up 
and down the coast. Farther to the south Japan has declared a sphere of in- 
fluence over Fukien province, Great Britian has her holdings' at Hong 
Kong, and the extreme southern part of the Republic is dominated by France. 

The Philippine Islands are owned by the United States, and Borneo,, 
Celebes and New Guinea are owned by Holland and Great Britain. Australia 
and New Zealand are parts of the British Empire and we could of course ex- 
pect no great changes in our trade relations with those countries, which re- 
lations, by the way, are quite satisfactory. 

As we look up and down the western side of the Pacific we must realize 
that China is the country of importance for us. From our standpoint it 

11 



might almost be said that under present conditions China is the only part of the 
western side of the Pacific worth seriously squabbling about. 

Future American Policy 

If some satisfactory arrangement can be worked out in Washington so that 
the integrity of the eighteen provinces of China can be maintained and orderly 
government developed and equal business opportunities extended to all nationali- 
ties it might be advisable to frankly recognize the need for Japanese expansion in 
Manchuria and eastern Mongolia, provided however, that the foolish arma- 
ment race between the nations can be terminated and disarmament be 
gradually brought about. Under such conditions peace and good will should 
prevail in the Far East, and undreamed of development should take place in 
that part of the world during the next generation, in which development the 
United States would take a very considerable and a very helpful part. 

If the Washington Conference does not work out a satisfactory arrange- 
ment in connection with the Far Eastern situation, then the United States 
must make up its mind to do one of two things, either to withdraw entirely from 
any large participation in Chinese affairs and leave the country to the tender 
mercies of those nations that are already on the ground, or else continue to 
strengthen oui" naval policy, adopt a strong position and be prepared if neces- 
sary to make a show of force. 

The Philippines 

If the old competitive spirit backed up by force is to continue to 
prevail and if the United States were to decide to withdraw from any serious 
participation in the resulting contest, the Philippine Islands would doubt- 
less prove to be a considerable burden to us, and the sale of these Islands to 
Great Britain, France or Holland, all of which countries have possessions near 
them, would seem to be advantageous from our standpoint, particularly if we 
were able to arrange for an exchange of the British, French and Dutch 
possessions in and around the Caribbean Sea. If on the other hand we were 
to decide that our enormous economic strength and our ability to maintain a 
great navy justified us in joining in the scramble, then the Philippine Islands 
might prove to be a very valuable possession, located as they are at about the 
center of the western side of the Pacific. However it would be necessary for 
us to strongly fortify the Philippines and maintain a great naval base at Guam. 

Congress has promised independence to the Philippines, but nobody 
in the East believes that they can be given independence for many years to 
come. There are over three thousand islands in the Philippine group, in- 
habited by some ten million natives belonging to many races and speaking 
many different languages. Of course very few of these natives are in any 
way educated and it is hard to imderstand how such a mixed mass of back- 
ward people can safely be given their independence. Well informed people 
believe that Philippine independence would merely result in the exploitation of 
the natives by the small but shrewd political group that already completely 
dominates the local politics of the Islands, and it is believed that in the end 
Japan or some other nation would find an excuse for taking the Islands over. 



12 



CHAPTER V 



Business Conditions in Japan 



BUSINESS men in Japan have recently experienced the same ups and downs 
in business as have Americans. During the war, and for some time follow- 
ing the armistice, Japan did an enormous export business, and large amounts 
of gold were consequently acquired. This gold served as a basis for great 
inflation, bank loans were increased, the circulating note issue was enlarged 
and, of course, costs, wages and prices all went rapidly up^ 

The Panic of 1920 

In the early spring of 1920 the banks realized that prices had risen to 
a point beyond all reason and they began to feel that any sudden shrinkage 
in values would greatly embarrass many of their customers. Furthermore 
they found that they had extended about all of the credit that it was 
possible to extend and consequently they began to exercise great care in 
scrutinizing their loans. This carefulness on the part of the bankers served 
as a warning to business men and it began to be realized that prices had 
gone far beyond true values. In order to get themselves into a stronger posi- 
tion some of the business men began to sell silk and the price soon com- 
menced to crumble. This price decline continued until silk that had been 
selling for around forty-five hundred yen per bale finally sold for less than 
fifteen hundred yen per bale. This enormous shrinkage in Japan's chief ex- 
port staple carried down the' price of practically everything else, causing many 
failures, brought about the closing of a large and important bank, and re- 
sulted in the temporary closing of the principal exchanges of the country. 
Japan experienced a good old fashioned American panic. 

Fall of Silver — Artificial Prices 

Japan's difficulties were made worse by the great fall in the value of 
silver because Japan sells a large part of her exports to China and other 
countries that are on a silver basis. The business man in China who had a 
considerable amount of silver on deposit in the banks found that this silver was 
worth less than half of its former value in gold standard countries like Japan. 
With the export market practically dead, and with many failures taking place 
it was of course necessary to close down many Japanese factories and to throw 
many men out of work. However labor in Japan is able to shift itself more 
easily than labor in America, and many of these working men went back to the 
country or secured some form of temporary low paid employment. This 
situation made it possible to maintain a fairly active home market, and 

13 



alleviated some of the difficulties of the situation. Furthermore the govern- 
ment took aggressive action and attempted to stop the decline in the price 
of some of the important staples. The government arranged to peg the 
price of silk at fifteen hundred yen per bale. It financed a pool that has 
bought and held large quantities of rice. It advanced money to industries in 
need of help, and it urged a decrease in the production of silk, rice, and 
other important products in order that it might be easier to maintain prices. 

The Government in Business 

It is quite surprising to Americans to learn how close the government is to 
business in Japan. Not only is business backed up in every way but the 
government itself is directly interested in many lines of business endeavor. 
The government runs the post office, the telephone and telegraph, the railways, 
and many of the utilities. It also owns the tobacco monopoly, the salt mono- 
poly, the camphor industry and controls various banks, shipyards, warehouses 
and industrial plants and has not neglected to secure the control of news- 
papers and other means of publicity. In Japan it is against the law to talk 
or preach socialism and any attempt along this line is promptly suppressed. 
It is odd that in such a country state socialism should have gained such an 
impetus. Perhaps this may be explained by the fact that the state owned in- 
dustries do not seem to be operated for the benefit of the "proletariat." 

Cost of Living — Labor Unions — Strikes 

Although wholesale prices and the prices of raw materials have tended 
constantly downward, nevertheless retail prices have not followed suit and 
this is causing great discontent. It seems that each line of business is 
organized in a guild and these guilds have broad powers over their mem- 
bers. It is claimed that the retail guilds have issued orders to their mem- 
bers to maintain prices at a fairly high figure and as a result the retailers 
have been "profiteering" and the public has been footing the bill. The 
working men also have their guilds but they have 'not held wages at a high 
enough figure to satisfy the workmen and consequently many of the work- 
men are endeavoring to form labor unions. It is against the law to organize 
labor unions in Japan but nevertheless some labor unions are being 
established and a large number of strikes are taking place. These strikes 
are practically all called for the purpose of getting increased wages. The 
men do not strike for shorter hours or for changes in conditions of manage- 
ment. At the present time wages are said to be very high, but they 
seem very low to us. For instance, carpenters receive less than $1.50 per day 
and street car conductors get less than fifty cents per day for a 10 or 12 
hour day. However there is a tremendous amount of loafing on the job as 
a result of which it is said that labor costs about as much in Japan as in America. 

The unusual activity of labor leaders in Japan has had a tendency to 
keep wages up and this has been a considerable factor in keeping up costs 
and also retail prices. 

Influence of the Banks 

The bankers of Japan have favored measures that would hold up values 
as in this way they hoped to limit the number of insolvencies. The Japanese 
banks belong to an organization called "The Associated Banks of Japan" 
and this association makes rules that are obeyed by the members and ex- 
ercises very wide powers over financial conditions. This organization has 
recently come to realize that you cannot "keep your apple and eat it too." 
In other words prices cannot be held up in Japan in order to keep Japanese 

14 



business men solvent and at the same time a great export campaign be pushed 
on the necessary basis of low prices to foreign buyers. 

More Liquidation Necessary 

The chambers of commerce are well organized and exert considerable in- 
fluence on public opinion. They have been pointing out the necessity for com- 
plete liquidation and have urged the business men to reduce costs in order 
that competition may be successfully met in the export field. Exporters state 
that American and European competition is becoming very keen and that new 
manufacturing industries in China are quoting prices lower than Japanese 
prices. 

Prosperity Will Return Slowly 

A further broad re-adjustment to new conditions must come about in 
Japan, as a result of which the domestic market will be placed on a sounder 
basis and the export trade will be able to quote better prices. The financial 
situation in Japan is constantly improving but there are still surplus stocks 
of goods on hand and a real business revival depends on a prosperous ex- 
port trade. However, prosperity in the export trade will return slowly and 
it would appear that Japan must exercise patience and do some more 
house cleaning before a permanent period of prosperity can be expected. 



15 



CHAPTER VI 



American Trade in Japan 



AMERICANS have been selling great quantities of raw materials and con- 
siderable quantities of manufactured goods in Japan for some years and 
while great trade possibiMties exist, nevertheless there are various difficul- 
ties that must be taken into consideration in connecton with the introduction of 
goods into the Japanese market at the present time. 

Business Depression 

First of all, the country is suffering from the severe business depression. 
The government and the banks in endeavoring to hold up wholesale prices to 
prevent insolvencies among business men, prevented the healthy liquidation 
of the cost of living. The high cost of living has held up production costs, 
and this is making it particularly difficult for Japan to sell goods in the 
present depressed export market. It would look as though business conditions 
must become worse before they can become better, and in the meantime the 
buying power of the country may become less than at present. 

Unfriendliness 

Another factor usually considered by business men in America is the 
unfriendly feeling toward our country held by many Japanese, notwithstanding 
the fact that most Japanese business men realize that the United States is 
Japan's best customer, and that friendly relations should accordingly be 
cultivated. After reading daily translations of the leading Japanese news- 
papers the average American would not blame the people for feeling un- 
friendly toward us, since many papers are jammed full of propaganda adverse 
to us, and the people are led to believe that we are a selfish, grasping, military 
nation, below the Japanese in civilization. 

The Washington Conference will furnish an opportunity for adjusting the 
chief points of difference between the United States and Japan, but we must 
speak frankly and make our position very clear. The older commercial nations 
of the world have been treating the Japanese somewhat like children. They 
have praised their accomplishments, passed over their deficiencies and been 
very careful not to hurt their tender sensibilities. Straight talk and firm action 
will do more to clear up American- Japanese misunderstandings than polite 
phrases, complimentary expressions and timid tactics. 

Our business men should most carefully watch the relations between our 
country and Japan, but the present situation should not deter us from en- 
tering the Japanese markets, for war at the present time is practically out 

16 



of the question and agreements satisfactory to both countries will very prob- 
ably be eventually worked out. 

Temporary Nature of Market 

It is often claimed that the Japanese market is merely a temporary one, 
inasmuch as the Japanese intend to eventually manufacture for their own re- 
quirements. However, it must be remembered that a considerable number 
of years must pass before Japanese manufacturing can become very greatly 
diversified. At present there are 25,000 factories in Japan and some two 
million hands are normally employed, but the number of lines covered is 
comparatively small and the lack of machinery and experience makes it fairly 
difficult for new lines to be developed. Furthermore, labor is beginning to 
demand modern conditions and it would not be surprising if a general manu- 
facturing readjustment were to become necessary during the next few years. 

The market for manufactured goods and machinery will doubtless remain 
open to foreign manufacturers for a considerable number of years to come, 
and the market for raw materials would seem to be on a particularly perma- 
nent basis, although Japanese activities on the mainland of Asia may in time 
make it possible for Japan to there obtain many of the raw materials needed. 

Dishonest and" Unethical Practices 

Many American business men have hesitated to do business with the 
Japanese because of the reputation they have acquired for dishonest methods, 
such as appropriating trade marks, disregarding patent rights, cancelling con- 
tracts, refusing to accept shipments, etc. We must remember, however, (that until 
recently a man engaged in trade in Japan was looked down upon and, conse- 
quently, high class men were not very often encountered in trade transactions. 
This situation has largely changed, but nevertheless, Japanese business mfen of 
today are suffering for some of the sins of the past as well as those of the 
present. Very little difficulty on this score will be experienced in Japan 
if American business men will use proper caution in checking up the 
standing of the people with whom they propose to do business, for there 
are many strong and honorable firms in all lines of business in the Empire 
of the Mikado. 

Exchange 

During these days of wildly fluctuating foreign exchange, exporters to 
Japan are of course vitally interested in the value of the Japanese yen. Dur- 
ing the war Japan became a creditor country for a short time and the yen was 
quoted at a premium over the American dollar. However, Japan is no longer 
a creditor country for the balance of trade has turned against her and the yen 
has fallen to a small discount, but this discount is not large when the adverse 
trade balance is taken into consideration and allowance made for the fact 
that Japan has been buying in her own government bonds in the New York 
and London markets. The fact that the yen has not fallen lower leads M a 
strong suspicion that it is "pegged" by the Japanese government. Japan holds 
plenty of gold and it would not be necessary for the government to support 
the exchange were it not for the fact that there is an embargo on the ship- 
ment of gold from the country and it is therefore impossible for the bankers 
to hold up exchange through gold exports. If the government has pegged 
the exchange, then Japan must be releasing some of the gold that is held in 
foreign countries, notwithstanding the fact that gold is not allowed to be 
shipped out of Japan. 

17 



There would appear to be little danger of any demoralization in Japanese 
exchange, although it will certainly be necessary for Japan to release consider- 
able gold in order to offset the adverse trade balance, but a domestic readjust- 
ment to a lower price level will, after awhile, make it possible for Japan to 
increase her export of goods and this will, of course, lessen the demands 
for her gold. However, it would be well to keep in mind the fact that Japan 
will remain a debtor country for a long time, and that she must consequently 
borrow money abroad or ship gold, and a considerable change in the financial 
situation may very possibly develop some time in the not distant future. 

How to Sell Goods 

In proceeding to introduce manufactured goods into Japan it is possible 
to make arrangements with reliable American or Japanese trading com- 
panies, but as these companies handle a multitude of lines, an able represen- 
tative should occasionally be sent to Japan to create interest in the goods being 
sold and make sure that the trading company is properly pushing the line. 

The greatest success will be obtained by opening a modest office in 
Japan and sending over a representative. The office must be opened with 
the idea of permanence, and the representative must be a high-class, well 
educated gentleman who will be able to develop a -good social position, and 
who will go to Japan with the idea of -making it his permanent home. The 
Japanese are great believers in tradition and permanence, and this idea of 
permanence must be played up strong in order to get the best results. If 
this kind of an arrangement is made and the business is allowed to grow 
slowly, it doubtless will grow surely. 

Some American concerns have entered into partnership arrangements with 
Japanese distributors but most of these arrangements have proven unsatis- 
factory although in several instances, due largely to the unusual personality 
of the Amierican representatives sent over, partnership arrangements have 
worked out successfully. 

Perhaps sometime in the future Americans may find it desirable to 
organize Japanese corporations for the purpose of carrying on manufacturing 
operations in Japan in the same way that we now organize subsidiary cor- 
porations for the purpose of operating manufacturing branches in Canada. 

When arrangements for proper representation in Japan have been made 
it will be necessary for the people at home to give the most careful attention 
to the goods that are sent out. Goods should be packed in such a way 
as to be conveniently handled by coolies or on the backs of ponies, and due 
consideration must be given to local good luck signs, odd sizes and shapes 
that are used in this market, lucky colors and the large number of small 
details that enter into the manufacture and sale of goods if they are to be 
popular in Japan. 

Chambers of Commerce 

It is quite surprising that there is no American Chamber of Commerce 
in Japan. All the great commercial nations have for some time been busy 
establishing their chambers of commerce in all parts of the world, and the 
United States should keep up with the procession. The Japanese have estab- 
lished a system of Japanese chambers of commerce in the principal cities of 
China and these chambers occasionally join together for general meetings, and 
keep in close touch with the chambers of commerce in Japan. 

18 



Get In at the Bottom 

The United States has suddenly become the strongest industrial nation, 
and our present capacity for production . will make it necessary for us to more 
seriously develop our foreign trade. If the Washington Conference attains 
the results that are hoped for, American trade with Japan will be given a 
great impetus and there will perhaps be no better time to begin to broaden 
our activities in the Japanese market than the present iwhen prices are near 
the bottom and business is poor, for under such conditions a slow, sure be- 
ginning can be made and the danger of losses from price fluctuations will 
be largely eliminated. 



19 



CHAPTER VII 



American Capital in Japan 



NOWADAYS, American capital is beginning to take an interest in the de- 
velopment of foreign countries, and there would seem to be two fields of 
operations in the Land of the Rising Sun, one in Japan proper and the 
other in connection with the Japanese projects on the mainland of Asia. 

Development in Japan 

A short inspection of Japanese cities and towns is all that is necessary to 
convince an American that practically all of the conditions of living must 
be improved if Japan is to become a really civilized country. The progress 
of the last fifty years has been very great, and all indications point toward a 
gradual improvement in the living conditions of the masses of the people 
until they may some day in the future somewhat approach living conditions 
in Europe and America. It would therefore appear certain that during the 
next twenty or thirty years enormous contracts will be let for the construc- 
tion of sewers, water mains, gas and electric plants, the paving of streets, the 
building of roads, and the rebuilding of nearly all of the houses in the country. 

Of course, in the past people have lived very fairly comfortably and have 
inot really needed many of the public improvements that usually go with 
civilization, but wealth and prosperity are increasing in Japan and the time 
would seem to be about here when the m.odern comforts of other civilized 
countries are going to be gradually extended from the small prosperous upper 
class to the masses of the people, but it must be realized that this process 
will be a slow one, for the Japanese people do not like booms or boomers 
and prefer to make changes slowly and conservatively. 

Already throughout Japan considerable development has taken place 
in connection with business and industry, but it is very apparent that during 
the coming years many hotels, office buildings and public institutions must be 
built and many new factories and industrial plants must be constructed. 
Furthermore, railroads must be considerably extended and additional docks 
and harbor facihties must be provided. 

With all of this construction in contemplation, it is interesting to note tbat 
the Japanese are not as yet considered good builders when large modern con- 
struction is to be executed and consequently there would seem to be good 
opportunities for strong and able American architects and contractors. 

In many countries in need of development, the capitalist, the contractor 
and the practical operator have worked hand in hand. If an electric light plant 

20 



was needed, the capitalist has handled a bond issue, secured by a mortgage 
against the electric light plant and usually guaranteed by the municipality, the 
province, or the nation. The contractor has then built the plant, whereupon 
the practical operator has taken charge and has operated the plant for a 
considerable term of years under an operating concession. The financing, 
the construction contract and the operating concession were usually all 
parts of one transaction and were all provided for in one document. 

The Japanese are very much averse to entering into contracts with 
foreigners covering financing, construction and operation under concession. 
They are somewhat fearful of the foreign capitalist and they prefer to operate 
their utility and industrial plants themselves. However, they are not averse 
to the employment of foreign contractors, and consequently greater opportuni- 
ties would seem to be available for the contractor than for the capitalist and 
the operator. Nevertheless, Japan will need a large amount of foreign capital 
unless her development work is to be allowed to drag along over a great many 
years, and American business men may eventually find it advantageous to organ- 
ize Japanese corporations for the purpose of financing, constructing and opera- 
ting utilities and industries in Japan, but such corporations will, of course, be 
organized under Japanese laws and will have none of the earmarks of foreign 
exploitation. 

Development on the Mainland 

It would seem that Japan could advantageously use large amounts of 
foreign capital in developing her projects on the mainland. 

The military party in Japan apparently believes that the next period of 
Japanese history should bring about the development of sources of raw 
materials and should result in a tremendous increase of the economic strength 
of the country. The militarists realize that economic strength is necessary to 
back up the army and navy and make Japan a supremely great nation. The 
militarists never seem to consider the possibilities of developing the economic 
strength of Japan and making her a supremely great nation without the army 
and navy. It is said that this is due to the fact that they feel that the Japan- 
ese are poor business men and will not be able to meet foreign competition 
in Asia without special advantages. Military control insures these advantages 
and consequently they not only think that the development of economic strength 
is necessary to back up the army and navy, but they believe that without 
the army and navy economic strength cannot be created. They feel that 
the two go hand in hand and the field of operations is, of course, the main- 
land of Asia. 

The Japanese want no interference with their plans on the mainland and 
consequently they want no partners. While they could use foreign capital 
to advantage and a partnership between American capital and Japanese ex- 
perience would be advantageous fro'm an economic standpoint, nevertheless, 
it would not be desirable from a military standpoint and consequently Japan 
prefers to go it alone. 

The advantages of military control may be illustrated by the conditions 
in Manchuria. The open door is supposed to be still open in Manchuria, but 
the Japanese have been getting all the trade and other nations have recently 
had a hard time to sell any goods. The railroads are owned by Japan 
and the Japanese business men are able to secure prompt freight deliveries while 
the foreigners often wait. It is also surmised that railroad rebates some- 

21 



times go to Japanese firms who are competing with firms of other nationalities. 
The telegraph lines are owned by the Japanese as well as the post ofiices, 
and it is claimed that Japanese firms receive undue advantages in connection 
with the prompt delivery of mail and telegrams. The banks are largely branches 
of Japanese financial institutions, and American business men sometimes 
charge that the banks have a habit of manipulating the exchange market to the 
disadvantage of business men not of Japanese nationality. The collection 
of import duties is subject to the influence of the Japanese and it is claimed 
that there are cases on record where Japanese traders were able to avoid the 
payment of any duties on the goods that they sent into the country. In fact, 
it may be said that the general influence of political control, backed up by 
armed garrisons, is too great a handicap for foreign business men to overcome 
and results in Japanese supremacy in the developing of raw materials and 
the carrying on of trade. 

This policy of the Japanese might lead to ultimate prosperity if it did not 
come into conflict with the interests of other nations. Militarism in Germany 
might have been all right for Germany if it had not come into collision with the 
rest of the world. There are certain principles of justice and fair dealing 
that it does not profit individuals or nations to disregard, and history would 
seem to warn Japan of the dangers of some of- her present policies. She 
would indeed be wise if she were to give up militarism and monopoly and sub- 
stitute friendliness and international co-operation. 



22 



CHAPTER VIII 



The Government of China 



WHEN the Emperor Kuang Hsu and the old Empress Dowager Tzu Hsi 
both died in 1908, a little boy, Hsuan Tung, succeeded to the throne 
and Prince Ch'un was appointed Regent to act until the Emperor be- 
came of age. The ruling family had become very corrupt and very weak and a 
change in the dynasty had long been urged by many influential people. The new 
Prince Regent was not as strong a character as the old Empress Dowager and the 
agitation for some change in the government became continually stronger and 
many of the provinces began to demand provincial autonomy. In 1911 some 
local trouble broke out at Wuchang and the weakness of the central govern- 
ment in putting down this disturbance led to a considerable spread of the 
disaffection and finally several provinces declared their independence and a 
great part of the southern and western sections of the country became in- 
volved. The Prince Regent called to his assistance Yuan Shih k'ai who was 
looked upon as the strongest man in China. Yuan was made Prime Minister 
and a liberal constitutional monarchy was proposed. However the Cantonese 
and other southerners realized that things were all going their way and con- 
sequently insisted upon the establishment of a republic. The government 
in the north suggested that the form of government be put to a vote of the 
people but while negotiations were being carried on a provisional govern- 
ment was established at Nanking and Dr. Sun Yat Sen was elected provisional 
President. In February 1912 the Manchu dynasty abdicated and suggested 
that the government should be a republic henceforth and that Yuan Shih 
k'ai should act as provisional President. The assembly at Nanking agreed 
to the suggestions of the Manchu dynasty and also bound the new govern- 
ment to supply adequate funds for the future financial support of the ruling 
family. Dr. Sun Yat Sen then resigned as provisional President and Yuan 
Shih k'ai was elected in his place. 

Meeting of Parliament 

In 1912 the National Assembly which had moved from Nanking to Peking 
adopted fundamental laws and in 1913 the first Parliament assembled. The 
right to vote was restricted by educational and property qualifications but 
nevertheless the plan for the election of Parliament was along democratic 
lines. Yuan Shih k'ai felt himself to be the strong man of China and before 
very long he got into a fight with Parliament, the result being that a revolt 
was started against him in the south of China which he finally put down by 
force of arms. Parliament finally passed a law providing that the President 

23 



of the Republic should henceforth be elected by the two houses of Parlia- 
ment and in 1913 provisional President Yuan was elected, not without great 
opposition, the first regular President of the Republic. 

Restoration of Monarchy 

Between 1913 and 1915 President Yuan ran things with a high hand. 
He forced his opponents out of Parliament and bad the fundamental laws 
changed to suit himself. He finally had the provinces appoint hand picked 
electors to vote upon a change back to a monarchy and these electors prac- 
tically all voted for a monarchy and also voted for Yuan Shih k'ai as Emperor. 
The Monarchy was proclaimed at the end of 1915 but a seriojis revolt im- 
mediately sprang up in the south and it is said that the Japanese 
who had always disliked Yuan assisted in stirring up trouble for him all 
over China. Yuan decided that the jig was up and renounced the title of 
Emperor. He appointed an influential man, Tuan Chi-jui, Prime Minister 
and promised a reversion to constitutional government. However the south 
organized a provisional government at Canton and, came out strongly for 
the elimination of Yuan from public life. At this stage of the game Yuan 
died and the Vice President, Li Yuan-hung became the President while Tuan 
Chi-jui remained as Prime Minister and soon became the strong man of the 
administration. Parliament reconvened in August 1916 and it looked as 
though the Republic might have smoother sailing, but before very long the 
Prime Minister got into a disagreement with Parliament and the President 
dismissed him. This led to a revolt in the north by the followers of Prime 
Minister Tuan and an attempt was made to set up a new government at 
Tientsin. 

Second Restoration of Monarchy 

The President was in great need of help and he called to his assistance 
General Chang Hsun who had considerable military prestige. General Chang 
agreed to put down the revolt in the north but demanded that the President 
dissolve Parliament and the President was forced to take this action even 
though he himself believed that he did not have the legal power to do it. 
A part of the Parliament withdrew to Canton and established the Southern 
government that has been opposing the Northern government ever since. . In 
the meantime General Chang promptly went back on the President and de- 
clared the Manchu boy Emperor to be again the ruler of China with the 
idea of he, himself, acting as Regent. The President now turned to the 
northern revolters and reappointed Tuan Chi-jui as Prime Minister. Tuan 
led an army to Peking and in five days the imperialists surrendered and the 
boy Emperor was sent back home again. Li Yuan-hung then resigned as 
President and the vice President Feng Kuo-chang became the President. 
Tuan remained as Prime Minister and with Japanese influence continued to be 
the strong man of the administration notwithstanding the fact that he dis- 
agreed radically with the President. The south of China refused to come 
back into the fold as they claimed that the northern government was im- 
perialistic and controlled by Japan. 

New Parliament Summoned 

Feng Kuo-chang did not last long as President for a Parliament was 
summoned under a new law that had been promulgated and the present 
President, Hsu Shih-chang, was elected. This was in October 1918 and the 
new President arranged for Tuan to remain as Prime Minister. The govern- 
ment of the south refused to recognize the new Parliament or the new Presi- 

24 



dent and pointed out the fact that the Prime Minister and the new Presi- 
dent were controlled by the powerful military governors of three of the 
northern provinces and claimed that these military governors with Japan- 
ese co-operation were the real powers behind the Peking government. 

Every dog has his day and after a while the northern military governors 
gave their support tto General Wu Pei-fu who by force of arms ousted Prime 
Minister Tuan. General Wu then suggested that a National Convention be 
called together in order that the difficulties of China might be ironed out, 
but this did not strike the fancy of the northern -military governors and 
General Wu was hastily relegated to the background while Chin Yun-keng, 
a protege of the military governors, was made Prime Minister and still holds 
that position although he has recently been threatening to resign because ot 
disagreements with the President. At the present time everything is being 
done by Presidential mandate upon recommendation of the Cabinet, both the 
President and the Cabinet holding (their positions subject to the pleasure of the 
northern military governors. 

Present Confusing Situation 

At the present time the north and the south are supposed to be carrying 
on a war against each other but this war seems to have degenerated into- 
a free-for-all fight between the ambitious military governors of various prov- 
inces. Recently General Wu Pei-fu of the north has been "coming back," 
for he has been winning battles against the south and has revived his Na- 
tional Convention idea. He is opposed by strong men in the north and bis 
continued success will doubtless lead to important changes in the political 
line-up in that part of the country. 

In the south all is not harmony for Dr. Sun Yat Sen is having trouble 
with General Chen Chiung-ming who seems to wish to supercede Dr. Sun as 
the big man of the south and the southwestern and western provinces have 
recently been talking about the establishment of a third government with head- 
quarters at Wuchang. 

Then it must not be forgotten that the Manchu boy Emperor is now almost 
of age, that a descendant of the old Ming dynasty stands ready to accept the 
throne upon any slight indication of an invitation, that wonderful possibilities 
exist for the military governor who is powerful enough to develop into a Dicta- 
tor and become the next Strong Man of China and that in the meantime the 
menace of Japan hangs over the whole situation. 

Such is the republican form of government in Far Cathay! 

Reasons for Failure of Republic 

The failure of the Republic to bring about the beneficial changes that 
were hoped for is due largely to the fact that the Chinese masses are entirely 
illiterate and pay not the slightest attention to politics. They are inter- 
ested only in their own local affairs and care not who rules the country so long as 
the tax collector. Another reason for failure is the fact that every Chinese 
official feels that public office is merely an opportunity to get rich. Ignorance 
and disinterestedness at the bottom and dishonesty at the top have so far made 
it impossible for a republican form of government to succeed. 

While it would appear that the coming of a dictator and the creation of a 
constitutional monarchy would seem to be natural things to expect, never- 
theless it must be remembered that large numbers of western educated students 
are returning to China every year, that the excellent mission schools and univer- 

25 



sities are turning out large numbers of intelligent future leaders, that newspapers 
are carrying new ideas to those who can read and that the extension of railroads 
is gradually bringing new thoughts and suggestions to practically all of the peo- 
ple of the country. Some well informed people feel that if Japan and other na- 
tions will give China a chance, the growing intelligence of the Chinese people 
and the popularity of the idea of provincial autonomy may eventually result in 
the establishment of strong provincial governments whose powers will extend ex- 
clusively to domestic matters, all of these provincial governments being held to- 
gether by one central government whose powers will extend exclusively to those 
matters of national and international concern. 

Perhaps it can hardly be expected that any form of government will be per- 
manently stable in China so long as the country must face the problem of over- 
population. All Chinese history is filled with stories of revolts, rebellions, 
brigandage a'nd loot and a large part of this disorder has been due to over- 
population. The Chinese have always been willing to fight and steal rather 
than starve and as the population always increases faster than the food supply 
there is always a large section of the people on the brink of starvation and these 
are always willing to join whatever military or bandit leader may come along. 
Over-population must continue in China regardless of any new developments 
so long as the Chinese people continue to look with favor upon the marriage of 
minors, the practice of polygamy and the Confucian teaching that every man 
owes a duty to himself and to his forebears to leave behind him in this" world 
a numerous company of ancestor worshipers. 

The domestic troubles of China do not make impossible the extension of 
trade with this great country for the so-called treaty ports are usually undis- 
turbed by the goings and comings of the warriors and the political chieftains, but 
under such chaotic conditions the progress and prosperity of the nation cannot 
make any great forward strides and the real development of China must await 
the day when honest and stable government shall be established. 



26 



CHAPTER IX 



The Hopes of "Young China" 



iiTT'OUNG CHINA" has been represented by most foreign writers as en- 
¥ thusiastic and progressive in the making of plans but slow and decided- 
ly impractical in carrying them out. However, most of the representa- 
tives of Young China impress the average American as high grade, intelligent 
and alert young men. Many of them are engaged in banking, manufacturing, 
engineering and general business and their conversation and manners are 
exactly the same as the conversation and manners of a group of high class, 
well educated young American business men. If in some things they may 
occasionally give indications of being impractical it must be remembered that 
they are yet young men and have not gained the experience of age, that a 
classical education in an American university sometimes leaves even American 
young men with impractical ideas, and that they must live down the natural 
tendency of the Chinese race to make plans and then put their execution off 
and let the future take care of itself. 

It may be of interest to outline some of the matters now being dis- 
cussed by these young Chinese business men as their ideas represent the am- 
bitions of a new and powerful force in China. 

Foreign Settlements and Spheres 
of Influence 

Young China would like to see "foreign settlements" in China abolished 
as they were in Japan and hopes that in the future the spheres of influence 
marked out by foreign nations will be abandoned. 

The foreign settlements represent sections of Chinese territory under the 
conltrol and government of various foreign nations, they having been created 
in order that foreigners might have protection and safety in transacting 
business in China. These settlements are usually administered by a council 
elected by the tax payers but the Chinese tax payers within the settlement are 
allowed no representation even though they are usually much more numerous 
than the foreign tax payers. Young China urges that the Chinese tax payers 
be taught the principles of good local government by being given representa- 
tion on the local council with the provision that a majority of the council 
shall always be made up of foreigners. It is hoped that the Chinese may 
gradually learn proper methods of administration and that the time will 
finally arrive when the settlements can be abandoned and foreigners will 
feel safe to live in China without this form of protection, 

27 



Spheres of influence were marked out in China by various powers in ac- 
cordance with the theory of the balance of power. If China was to be parti- 
tioned, each nation wanted a good piece of the pie in order that the balance 
of power among the nations might be maintained. As a result of the world 
war the balance of power idea is a thing of the past and the danger of a 
partition of China among the nations of Europe would seem to have disap- 
peared. Young China hopes that all spheres of interest may ultimately be 
given up by European nations and that Japan may be persuaded to join with 
them in the real maintenance of the Open Door in China. 

Extraterritoriality 

Each of the important foreign nations, including the United States, main- 
tains its own courts in China and its citizens are subject to their own laws 
and must take all legal matters before their own courts. This system is 
known as extraterritoriality and it is maintained because of the lack of modern 
judicial standards in China. Young China hopes that this system will be 
done away with in time as it was done away with in Japan and it is hoped 
that Chinese knowledge of modern legal practices will rapidly grow, that a 
new judicial system may in the near future be put into practical effect and 
that trial by jury may ultimately be established. (It is interesting to note that 
trial by jury is unknown in the Far East.) Young China urges that the for- 
eign courts help to educate the people by appointing Chinese as assistant Judges 
and court officers and it is suggested that the United States could add to its 
great number of friends in China if, at some opportune time, it should enter 
into a treaty with China providing for the giving up of extraterritoriality upon 
the maintenance by China for a stated number of years of such judicial stan- 
dards as may be set forth in the treaty. 

Tariff 

Many years ago China agreed with Great Britain that she would not 
levy tariff duties at a higher rate than five per cent. Since this agreemeni 
was made China has signed treaties with many nations containing the '"most 
favored nation" clause and she is now unable to modify her tariff agreement 
with Great Britain unless all of these other countries acquiesce and this some 
of them have refused to do. As a result of this situation China is unable to 
change her tariff schedules in accordance with the needs of the country and 
her tariff revenues are greatly restricted. Young China hopes and pra3^s that 
the important nations will not continue to take advantage of a hard bargain 
and that an agreement may be arrived at in the near future under which China 
will be allowed to exercise some control over her o^vn tariff schedules. The 
collection of the present duties is in the hands of foreigners as the duties are 
pledged as security for Chinese government loans placed in foreign countries 
and it is urged by the educated young men of China that an increasing num- 
ber of Chinese officials be instructed as to the proper methods of administering 
the customs by being given employment under the present foreign officials 
who have charge of the customs organization. 

Foreign Control of Financing 

For a good many years China has been borrowing money in foreign coun- 
tries and originally there was great competition among foreign nations who 
wished to look after her monetary needs. As a result of this competition 
China was able to get very good terms and was able to play the political 
schemes of one country off against those of another. However, some years 

28 



ago Great Britain, France, Germany and the United States entered into an 
arrangement by which their bankers acted together in loan negotiations with 
China, This was known as the "four power group" and later on this was 
extended to the "six power group" by the admission of Russia and Japan. 
This arrangement was of course terminated by the war and 'there has now been 
organized a new "Consortium" made up of bankers representing Great Britain, 
France, Japan and the United States. It has been suggested that a group of 
Chinese banks might be invited to join the Consortium but the indications are 
that the Chinese banks would decline such an invitation believing that it is to 
the interest of their country for them to remain independent of any international 
group. 

Young China objects to the fact that loans made by these groups for the 
construction of railroads and other purposes have not been looked upon as 
strictly business transactions but have been considered as political in their 
nature and have carried with them grants of power by the' Chinese govern- 
ment that may very possibly interfere with Chinese sovereignty in the future. 
The educated young men of China hope that political finance has come to an 
end and that future financing in China will be based entirely upon business con- 
siderations and will have as its sole object the development and building up of 
the Republic. 

Foreign Postoffices 

All of the important nations, including the United States, operate their 
own postoffices and maintain their own system of mail collection boxes in the 
important treaty ports of China, and Japan goes them one 'better by main- 
taining her postoffices in many parts of the country. Young China looks upon 
this as a great indignity and furthermore feels that it is depriving China of a 
large postal revenue that naturally belongs to her. Furthermore it is claimed 
that the huge morphine and opium trade that has recently been developed by 
Japan in China is being carried on through the Japanese mails, the drugs being 
sent through the Japanese postoffices to Japanese residents in China who 
illegally sell them to the Chinese. It is claimed that when the Chinese officials 
succeed in apprehending the Japanese drug distributors the extraterritorial 
system makes it possible for the Japanese to be promptly cleared by taking 
their cases before their own Japanese court. Young China realizes that the 
Chinese postal service is not the most reliable in the world but nevertheless 
it is hoped that some agreement may be entered into in the near future that 
will change present unfair and unsatisfactory conditions. 

The Aggressions of Japan 

Young China believes that the Japanese intend to get the administra- 
tion of the affairs of the country into their own hands. 

Japan has annexed Korea and is in control of Manchuria and eastern 
innei; Mongolia. She is in at least temporary complete control of Shantung 
province and she has been gradually getting control of the affairs of Fukien 
province. Furthermore the intention of Japan to greatly extend her political 
control of China was clearly shown by the famous "twenty-one demands" that 
were made by her during the war. 

Japan has been carrying on war-like penetration of China and at the 
same time she has not neglected so-called "peaceful penetration." She has 
loaned huge sums of money to China and through these loans she has man- 
aged to get co-ntrol of the operation of some of the railroads, has acquired the 
virtual ownership of the great iron and steel industry located in the neighbor- 

29 



hood of Hankow, and has secured a strong hold on the Chinese government 
banks. Furthermore she has been granted the privilege of exploiting the great 
forests in the north and of developing the mines in various parts of the country 
and she is also operating many public utilities and industrial enterprises. In con- 
nection with the control and management of business and industrial undertakings 
Japan usually claims th'e right to send in troops to protect Japanese business 
interests whenever she feels that these interests are threatened because of local 
disorders. 

Young China is much exercised over the fact that Japanese garrisons 
have been established in various parts of the Republic, Japanese police stations 
have been illegally placed upon Chinese soil, Japanese telegraph lines have 
been constructed and telegraph offices opened in numerous places, Japanese 
postoffices have been scattered over the country and Japanese peddlers and 
small tradesmen, who often act as secret service agents, have, contrary to 
law, been very active in many of the provinces. 

It is of course a well known fact that Japanese influence at Peking has 
been predominant during the past few years and it is also claimed, that Japan- 
ese agents have been very active in keeping the country divided and that they 
have used large sums of money in their endeavor to promote domestic political 
chaos. To the young men of China who are familiar with the history of Korea 
the Japanese programme appears to be quite plain and they greatly fear 
that their country will follow Korea under the rule of Japan. 

Young China is inclined to blame the British for the recent Japanese 
aggressions for they feel that the existence of the Anglo- Japanese Alliance led 
Japan to feel that she could go ahead with her programme in China without 
fear of outside interference and without any danger of antagonizing Great 
Britain. It is said that under present conditions the renewal of the Alliance 
would precipitate a great trade boycott against the British as well as the 
Japanese 

Young China looks to the Washington Conference to work out some 
agreement that will save China from Japan. The idea of any kind of an in- 
ternational protectorate is very unpopular for Young China does not believe 
that such an arrangement would work out to the advantage of their country and 
it is felt that the jealousies between the nations that might undertake to 
establish such a protectorate w^ould surely result in trouble for the Celestial 
Republic. The Japanese have been doing a great deal of talking about a 
Monroe Doctrine for Asia and Young China seems to think that it would be a 
good plan for the Washington Conference to actually establish a real Monroe 
Doctrine covering China. Under such an arrangement tb3 principal nations 
would serve notice that no territorial encroachment by any nation would be 
permitted in China and that the Open Door would be kept open just the 
same as it is kept open in South America under the American Monroe Doctrine. 
Young China believes that China can establish modern stable government in a 
much shorter time than was required by the leading South American nations 
provided only that she is accorded the same opportunities that were accorded 
to South America. Here would seem to be a programme in full accord with 
American policies and traditions and in harmony with policies that the Japan- 
ese have at least claimed to espouse. 

An American News Service 

Young China calls attention to the total lack of an American news service 
in China. The Associated Press does not operate in China and the news 

30 



is supplied by Reuters, owned by the British, and Kokusai, owned by the 
Japanese and closely connected with Reuters. Very little American news filters 
through except that the leading murders, riots, explosions and divorces seem 
to be fairly adequately reported. This situation is very disadvantageous to 
American business interests and to American political standing. It is said that 
the news of the Lansing-Ishii note was released by the Japanese news service in 
Peking even before it was released in America and the Japanese explanation 
of this note was thoroughly spread all over China. There was no news service 
to carry our interpretation and consequently much unfriendliness was developed 
toward America and the damage that w^as done has not yet been fully re- 
paired. It would seem to be very greatly to the interest of the business men 
of America to have an American news service cover China during the Wash- 
ington Conference for only by interpreting the news ourselves will we be able to 
retain Chinese friendship, particularly, if some of the decisions of the Conference 
are contrary to the desires of China. 

Chinese Students in America 

It is interesting to learn from returned Chinese students just how they 
were treated while they were in America and in this connection there would 
seem to exist a great opportunity for Chambers of Commerce to help our 
future Chinese trade. There are several thousand Chinese students 
now studying in American universities and it has perhaps never occurred 
to us how much these students would appreciate any attentions that 
might be shown them by our business men and Chambers of Commerce. 
Most of these young men would like to get personally acquainted with our 
business leaders and would like to get some good practical sound advice re- 
garding their education and tbeir life after they return to China. It 
would be a fine thing for our Chambers of Commerce to occasionally invite 
these young men to dinner, to appoint special committees whose duty it would 
be to occasionally advise with them, and to interest our business men in taking 
some of these young Chinese into their family and business circles. These 
young men are to be the future leaders of China as is plainly seen by the 
influence that returned students are now exerting in the Chinese Bankers 
Association and the Chinese Chambers of Commerce, tbsse organizations being 
perhaps the most constructive forces in China today. American business 
men should win the close personal friendship of these students. The rela- 
tionship will be of great value to the students today and will pay great 
dividends to us tomorrow. 

Friendship for America 

The young men of China have confidence in the future of their rich 
and boundless country notwithstanding its present difficulties because they 
rely upon the friendship of America to help them over the rough places. No 
country in the world enjoys such confidence among the Chinese as our own 
great Republic and to our business men would seem to fall the duty of using 
every care to see that this confidence shall never grow less. 



31 



CHAPTER X 



American Business Opportunities 

in China 



GHINiV is a country of wonderful undeveloped resources and its population 
is made up of the hardest working people in the world. It would con- 
sequently seem that the coming of industrialism will greatly increase the 
purchasing power of the country and add tremendously to the importance of 
the Chinese market. The popularity of Americans is very considerable and 
their opportunities here should be most excellent but on the other hand there 
are various difficulties to be encountered and only large and strong American 
concerns should attempt to come into this market at this particular time. 

Business Conditions 

During recent years China has experienced much prosperity but just at 
present the prosperity of the country has temporarily waned and a considerable 
depression has developed. During and after the war the price of silver was 
very high and then when business depression spread over the world the price 
of silver took a great fall. As all business in China is transacted on a silver 
basis this fall in the price of silver resulted in enormous losses to business men. 
Furthermore about this time the country suffered from a great drought that 
destroyed many of the crops and this drought has been followed by great 
floods that have seriously injured this year's crops. All of these things have 
resulted in cancellations of orders, protested drafts and failures and it would 
appear that "honest John Chinaman" has been learning some business tricks 
from other nations. 

China almost completely lacks the broad and complicated business and 
economic organization that is so necessary in carrying on the affairs of the 
people of modern nations and this lack of organization constantly holds China 
back. However at just the present moment it may perhaps prove to be an 
advantage because there has been no economic machinery to get. out of gear 
and consequently economic readjustment 'will not be so severe as in other 
countries. While there may be a further weeding out of weak concerns, 
nevertheless there would seem to be no need for a further general domestic 
liquidation such as appears to be necessary in Japan and favorable crops to- 
gether with a fair improvement in the export market for China's products 
will doubtless bring back prosperity. 

32 



Domestic Political Situation 

As is well known the domestic political situation is in a chaotic condition 
and while these domestic troubles do not seriously affect the business man in 
the treaty ports nevertheless they tend to decrease trade and commerce in the 
interior and consequently have a detrimental effect upon the general business 
of the nation. 

International Political Situation 

The international political situation has a very direct effect upon business 
with China because business is always adversely affected by such great uncer- 
tainties as those entering into the so-called Far East Question. It is hoped 
that the Washington Conference will make it possible for American business 
men to proceed with confidence in the stability of international understand- 
ings affecting the Far East. 

Exchange Difficulties 

All business in China is transacted on a silver basis and the local cur- 
rency fluctuates in value from hour to hour in accordance with the changes 
in the price of silver as quoted in London and New York. Furthermore the 
local demand and supply affects the local rates and there are various and 
sundry other influences entering into the frequent ups and downs. The entire 
monetary system is quite surprising to a new comer. In Shanghai he learns 
that his New York draft must be converted into silver taels but as there is no 
such coin in existence it is necessary for him to convert the taels into silver 
Chinese dollars. In converting his New York draft into taels he finds that 
the rate of exchange is very erratic and in converting his taels into dollars 
he finds that here again the rate of exchange must be considered. The new- 
comer's respect for the peculiar type of financial genius that has developed in 
China will continue to grow when he draws one dollar out of the bank and 
receives ten dimes but later on learns that if he wishes to deposit one dollar 
in change to the credit of his account it will be necessary for him to produce 
eleven dimes. His respect for the local system will be still more enhanced 
when he changes a dime into pennies and receives ten and then later on buys 
a ten cent cigar and is told that it requires thirteen pennies to make a dime. 

It is absolutely essential for American business men who intend to do 
business in China to make a most careful study of the influences that affect 
exchange, for business with China will develop into nothing but a gamble on 
the price of silver unless the exchange situation is thoroughly understood and 
proper exchange reserves are set up against possible losses. 

How Goods Are Being Sold in China 

There are three methods that are being employed by American firms 
in selHng goods in China. The first of these methods is representation 
by trading companies, but the usual arguments against the use of trad- 
ing companies apply in the Chinese trade as elsewhere. These companies 
represent a very large number of fines and are consequently unable to 
push each individual line to the best advantage and trading companies of 
nationalities other than American are quite often inclined to advance the in- 
terests of their own nationals at the expense of the interests of Americans. 
When trading companies are used, American firms should maintain able, 
experienced, traveling representatives in the Far East who will check up the 

33 



trading companies and help to popularize the American goods that are be- 
ing offered for sale. 

The second method that is being used by American firms is the establish- 
ing of sales branches in China. The usual advantages of this method apply 
particularly in China where so many local conditions must be understood. 
Branch sales offices should be started in a small way, should be in charge of 
high class, well educated representatives and the home concern should realize 
that it is vitally important for them to back up their Chinese branch in every 
possible way. Chinese specifications should be followed and no attempt should 
be made to induce the Chinese to adopt American specifications. All of the 
prejudices and special requirements of the Chinese market should be given the 
most careful attention and absolute satisfaction both in connection with the 
goods and with the time and manner of deliver}- should be striven for. It 
should not be forgotten that government-backed Japanese competition is very 
close to this market and any dissatisfaction on the part of the customer may 
send him into the Japanese fold. Furthermore the competition of Europe is 
fairly strong, the Germ.ans enjoying very strong friendships in China and having 
recently been able to quote very low prices due to the condition of mark ex- 
change. American business concerns that establish branches in China should 
in most cases expect to lose money for the first two or three 3'ears until their 
business interests become thoroughly established. 

American Factories in China 

The third method that is being adopted by some American firms is the 
opening up of local factories in China in much the same w^ay as American 
firms have established branch factories in Canada. This would ^ppear to be 
the one best bet in China for American manufacturers. Many lines of 
American goods cannot be sold in China because the people are unable to pay 
the price, but by establishing factories in China prices can" be brought down 
to a point that is more nearly within the reach of the Chinese public. The 
establishment of such factories will not take employment away from Ameri- 
can workmen because the business secured by these branch factories in China 
will be almost entirely new business that could not be secured at all except 
through the opening up of these factories. The best results will be obtained 
by those lines in the production of which labor represents the largest element 
of cost and for the production of which necessary raw materials can be readily 
obtained in China. In America the elements of cost in the order of their 
importance are labor, supervision and materials. In China the order is 
reversed and the elements of cost are materials, supervision and labor. Chinese 
factory labor is now being paid from nine to fifteen Chinese dollars per month 
for a twelve hour day. This would be equivalent to from four dollars and a 
half to seven dollars and a half United States money. Many women and 
children are also employed and they are paid what would be equivalent to from 
three dollars to four dollars in United States money per month. Higher class 
labor such as carpenters, plumbers, etc. can be employed for the equivalent of 
thirty cents United States money per day, the number of hours of labor varying 
between ten and twelve. While such a scale of wages naturally seems to us to 
be criminal, nevertheless the usual standard of living is so low in China that 
the working people are very well pleased to get steady employment at these 
wages which apparently are sufficient to cover their accustomed requirements. 
The supervision of labor is of the greatest importance for the working 
people will loaf on the job whenever it is in any way possible to do so. Con- 

34 



sequently it is necessary for American firms to send over able American 
superintendents and to also send over American foremen or else care- 
fully train intelligent young Chinese to become foremen. Some Ameri- 
can concerns have educated Chinese foremen in their American factories 
and have then sent them back to China and this plan has worked out very 
satisfactorily. It might be a good idea for American manufacturers who 
intend to enter this field to get in touch with some of the numerous young 
Chinese students who are attending American universities. Many of these 
young men could be interested in a plan under which they would go into 
American factories as soon as their education was completed and later on 
would become superintendents in China for these same concerns. These 
American educated Chinese make very intelligent and capable superintendents 
and managers and many of them have already succeeded in building up pros- 
perous Chmese industrial undertakings of their own. The industrial develop- 
ment of China is just beginning and American manufacturers will make a great 
mistake if they overlook the manufacturing possibilities here. 

Some people feel that the industriahzation of China will bring forward the 
real Yellow Peril. They feel that the development of the raw materials and 
cheap labor of China will swamp the world with cheap products and they 
consequently urge that we do nothing to help Chinese industrial development. 
However these fears are not well grounded for the industrialization 
of China will bring prosperity. Prosperity will bring rising prices and rising 
wages and production costs will gradually tend to equal production costs in 
other countries. We used to hear that industrial development in Japan was 
going to injure industry in all other countries but industrial prosperity in Japan 
has resulted in rising costs and in some lines the Japanese are already complain- 
ing about the competition of Europe and America. The same tendency will 
surely develop in China as the years go by but in the meantime large profits 
will accrue to the American manufacturers who help to bring industrialization 
about and the development of a prosperous China will create new demands 
for the products of American factories and American labor. 

American Chambers of Comimerce 

In the development of American foreign trade great assistance can be 
rendered by American Chambers of Commerce located in countries through- 
out the world and it is interesting to note that American Chambers of Com- 
merce have been established in many important Chinese cities and plans are 
being made for holding a general meeting of representatives of all of the 
American Chambers of Commerce in China. These American Chambers of 
Commerce feel that they should have more support from the Chamber of 
Commerce of the United States. Our National Chamber has co-operated 
loyally in organizing an International Chamber of Commerce for the purpose 
of looking after the general business interests of all nations. Would it not 
be wise for our National Chamber to also organize a League of American 
Chambers of Commerce in Foreign Countries for the purpose of advancing 
our own American trade interests throughout the world? 

Investments and Development Work 

In a country like China the investment of money will result in develop- 
ment work being contracted for with citizens of the country from which the 
money comes. Americans should consequently be interested in possibilities 
for the investment of American capital in China. We naturally think of three 

35 



fields that we imight enter, first, loans to governments or provinces for the 
development of railroads and natural resources and the construction of public 
improvements and utilities; second, investments in industrial undertakings; 
and third, investments in connection with the construction of office buildings, 
hotels, store buildings, private houses and the general rebuilding of the country. 

Loans to the governm.ent and the provinces have been under consideration 
by the so-called Consortium made up of groups of 'bankers from the United 
States, Great Britain, France and Japan, the United States group consisting 
of a considerable number of our leading financial institutions. This Con- 
sortium has the support of the four interested governments and it v/as planned 
that it should handle such loans as have the guarantee of the central govern- 
ment of China or any of the provincial governments and which are to be offered 
for sale to the public. It was not contemplated to eliminate private en- 
terprises or the activities of financial or industrial corporations. However the 
international situation in the Far East and the domestic political situation in 
China have interfered with the formulation of plans for loans by the Consor- 
tium. It is hoped that the Washington Conference may imake possible some 
activities along this line. 

Investments in tb3 industrial development of China are being made by 
American concerns right along and it is desirable that many more of these 
investments be made in the various treaty ports. There is a broad field for 
this type of investment and as the years go by this field will become even 
greater. Americans should not overlook the opportunities for investment along 
this line at the present time. 

Investments in connection with the rebuilding of China must await future 
developments although there is some field for activity in some of the treaty 
ports. After industrialism has developed somewhat further there will arise 
a demand for new buildings and construction and it will be time enough to 
consider the investment of money along this line when that time arrives. 

Careful Study of Far East 

The war led to the development of a very large capacity for production 
in America and it is going to be necessary for us to give very much more at- 
tention to foreign trade than ever before. Fortunately for us our large pro- 
ducing capacity is backed up by large financial resources and about the only 
thing we seem to lack is experience. It is consequently of great importance to 
our country for every business man to devote some time to study of foreign 
conditions and to travel in foreign countries. In this connection the principal 
nations of the Far East are surely among those countries that should have 
our most careful interest and consideration and it is to be hoped that the results 
of the Washington Conference will encourage Americans to take an imj^ortant 
part in the future development of that part of the world. 



36 



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